Twenty-First Century Fox 2008 Annual Report Download - page 92

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Notes to the Consolidated Financial Statements (continued)
Equity based compensation
The Company accounts for share based payments in accordance with SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123R”).
SFAS 123R requires that the cost resulting from all share-based payment transactions be recognized in the consolidated financial
statements. SFAS 123R establishes fair value as the measurement objective in accounting for share-based payment arrangements and requires all
companies to apply a fair-value-based measurement method in accounting for generally all share-based payment transactions with employees.
The Company adopted SFAS 123R in July 2005 using a modified prospective application, as permitted under SFAS 123R. Under this application, the
Company is required to record compensation expense for all share-based awards granted after the date of adoption and for the unvested portion
of previously granted awards that remain outstanding at the date of adoption.
Pension and other postretirement benefits
In June 2007, the Company adopted SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans—an
amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS No. 158”). SFAS No. 158 requires an employer to recognize the overfunded or
underfunded status of a defined benefit postretirement plan (other than a multiemployer plan) as an asset or liability in its statement of financial
position and to recognize changes in that funded status in the fiscal year in which the changes occur through comprehensive income. (See
Note 16—Pensions and Other Postretirement Benefits)
The following table summarizes the incremental effects of the initial adoption of SFAS No. 158 on the Company’s consolidated balance sheet
as of June 30, 2007:
Before application
of SFAS No. 158 SFAS No. 158 adjustment After application of SFAS No. 158
(in millions)
Intangible assets $ 11,710 $ (7) $ 11,703
Other non-current assets 1,096 (274) 822
Total assets 62,624 (281) 62,343
Other liabilities 3,301 18 3,319
Deferred income taxes 5,999 (100) 5,899
Total stockholders’ equity 33,121 (199) 32,922
Total liabilities and stockholders’ equity 62,624 (281) 62,343
Derivatives
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities” (“SFAS No. 133”), requires every derivative instrument (including
certain derivative instruments embedded in other contracts) to be recorded on the balance sheet at fair value as either an asset or a liability. SFAS
No. 133 also requires that changes in the fair value of recorded derivatives be recognized currently in earnings unless specific hedge accounting
criteria are met.
The Company uses financial instruments designated as cash flow hedges to hedge its limited exposures to foreign currency exchange risks
associated with the costs for producing films abroad. All cash flow hedges are recorded at fair value on the consolidated balance sheet. As of
June 30, 2008 and 2007, the notional amount of foreign exchange forward contracts with foreign currency risk was $34.2 million and $107.8 million,
respectively, and the net unrealized gain was approximately $0.2 million and $2.5 million, respectively. The potential loss in fair value for such
financial instruments for a 10% adverse change in quoted foreign currency exchange rates would be approximately $1.5 million and $10.8 million,
respectively. The effective changes in fair value of derivatives designated as cash flow hedges are recorded in accumulated other comprehensive
income with foreign currency translation adjustments. Amounts are reclassified from accumulated other comprehensive income when the
underlying hedged item is recognized in earnings. If derivatives are not designated as hedges, changes in fair value are recorded in earnings. (See
Note 10—Exchangeable Securities.)
Recent accounting pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”), which defines fair value, establishes a new
framework for measuring that value and expands disclosures about fair value measurements. SFAS No. 157 will require, among other things,
expanded disclosure about fair value measurements that have a significant portion of the value determined using unobservable inputs (level 3
measurements). The standard applies prospectively to new fair value measurements performed after the required effective dates, which are as
follows for the Company: in the first quarter of fiscal 2009, the standard will apply to the Company’s measurements of the fair values of financial
instruments and recurring fair value measurements of non-financial assets and liabilities; in the first quarter of fiscal 2010, the standard will apply
to all remaining fair value measurements, including non-recurring measurements of non-financial assets and liabilities such as measurement of
potential impairments of goodwill, other intangible assets, other long-lived assets and non-financial assets held by a pension plan. It also will
apply to fair value measurements of non-financial assets acquired and liabilities assumed in business combinations. The Company is currently
evaluating what effects, if any, the adoption of SFAS No. 157 will have on the Company’s future results of operations and financial condition.
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